Refer the following information :
I. The GDP at market price of an imaginary economy in a particular year was Rs 2,200 crore.
II. Net Factor Income to Abroad was Rs (-)200 crore.
III. The value of Indirect taxes net of Subsidies was Rs 300 crore.
IV. National Income was Rs 1,700 crore.
Calculate depreciation value from given information:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 400 crore
National income is NNP at factor cost, reached from GDP at market price in three steps. One of them deducts depreciation, the wear and tear of capital in production, which separates a gross aggregate from a net one. With every other figure known, depreciation is found by working the chain through.
Given:
GDP at market price, GDPMP = Rs 2,200 crore
Net factor income to abroad = Rs (−)200 crore
Net indirect taxes (indirect taxes net of subsidies), NIT = Rs 300 crore
National income, NNPFC = Rs 1,700 crore
Net factor income to abroad is the reverse of net factor income from abroad. A negative figure to abroad means the economy receives more factor income than it pays, so:
Net factor income from abroad, NFIA = + Rs 200 crore
Taking −200 as net factor income from abroad would give a depreciation of zero, which is not an option; the sign of a figure ‘to abroad’ is reversed first.
Going from GDP at market price to national income, one step at a time:
Domestic to national: GNPMP = GDPMP + NFIA = 2,200 + 200 = Rs 2,400 crore
Gross to net: NNPMP = GNPMP − Depreciation = 2,400 − Depreciation
Market price to factor cost: NNPFC = NNPMP − NIT = 2,400 − Depreciation − 300
Setting this equal to the national income given:
2,100 − Depreciation = 1,700
Depreciation = Rs 400 crore, which is Option (1)